E0331043049

International Journal of Business and Management Invention
ISSN (Online): 2319 – 8028, ISSN (Print): 2319 – 801X
www.ijbmi.org Volume 3 Issue 3ǁ March. 2014ǁ PP.43-49
www.ijbmi.org 43 | Page
Exploring the Complicated Association between Knowledge
Management and Management Accounting Systems with The
Directed Acyclic Graph Technique
Quang Linh Huynh1
1
Faculty of Economics Laws, Tra Vinh University, Tra Vinh, Vietnam
ABSTRACT: The linkage between the implementation of management accounting systems and the adoption of
knowledge management is quite complicated. The implementation of management accounting systems is not
only the causation, but also a consequence of adopting knowledge management. Nevertheless, this relationship
has not been comprehensively explored in prior research. This research tries to investigate the complex link
between the implementation of management accounting systems and the adoption of knowledge management by
applying the directed acyclic graph technique. The findings reveal that the implementation of management
accounting systems is the first factor of the two resulting in the adoption of knowledge management. However,
subsequently, adopting knowledge management in business imposes a positive influence back on the
implementing level of management accounting systems. The statistical results are useful to researchers and
especially to managers by offering them an insight into this complicated relationship. This will help the
managers make a better decision on the acceptance of management accounting systems as well as knowledge
management in their business in order to obtain competitive advantages over their rivals.
KEYWORDS: Implementation of management accounting system; Adoption of knowledge management;
Directed acyclic graph technique
I. INTRODUCTION
In this research, I deal with the two main variables, which are the adoption of knowledge management
and the implementation of management accounting systems; in particular, I discuss the complicated relationship
between them. Knowledge management is the art of creating value by leveraging intangible assets, which
consists of activities in all relevant managerial areas (Salojarvi et al. 2005). It is also considered as the process
of converting intellectual assets into enduring value in business. Recently, the business circle begins to take
interest in knowledge management. Consequently, it becomes a hot topic in management research. Firms that
consistently control and integrate knowledge into business activities to achieve their objectives can achieve
superior success (Droge et al. 2003). Knowledge management is also suggested by Darroch (2005) to provide a
coordinating mechanism to transform resources into competences. Adopting and performing knowledge
management allows managers to enjoy many positive benefits for business (Wong and Aspinwall 2005).
However, the adoption of knowledge management in business challenges business managers, because it is not
only affected by other factors, especially by the implementation of management accounting systems, but it also
determines the implementation of management accounting systems in business. Management accounting
systems play an important role in providing managers with timely and exact important information, which helps
them to make better decisions on business; as a result their firms can gain competitive advantages over rivals.
The implementation of management accounting systems is suggested to have a mutually causal relationship with
the adoption of knowledge management (Tayles et al. 2002, 2007; Edwards et al. 2005; Novas et al. 2012). To
date, it seems that no research has investigated this mutually causal relationship in the joint model. Hence, we
find it necessary to investigate the complex link between the adoption of knowledge management and the
implementation of management accounting systems in the joint research model.
This research attempts to employ the directed acyclic graph method to discover which factor of the two
main factors “the adoption of knowledge management and the implementation of management accounting
systems” is the first to affect the other. To the best of our knowledge, this research is the first to apply the
directed acyclic graph method in investigating the mutually causal relationship between the adoption of
knowledge management and the implementation of management accounting systems. The findings reveal that
the implementation of management accounting systems in business will come first in the mutual relationship
between the adoption of knowledge management and the implementation of management accounting systems.
This research offers some contributions to both literature and practical sides.

Exploring The Complicated Association Between…
To the literature, this research discusses and justifies the mutual relationship between the adoption of
knowledge management and the implementation of management accounting systems in the joint research model.
To the practice, the findings offer management researchers with the better understanding of the complex mutual
link between the adoption of knowledge management and the implementation of management accounting
systems in business. The empirical results are also useful to managers in knowledge management and
management accounting by providing them an insight into the mutually causal association between the
implementation of management accounting systems and the adoption of knowledge management in business.
Accordingly, they can offer better decisions on the implementation of management accounting systems and the
adoption of knowledge management in their business, which will enhance their firm success.
The research will continue as follows. A literature review will discuss and develop hypotheses in the subsequent
section. Then, the research methodology will show how to collect and analyze the data, followed by the
empirical results. The final section will provide some conclusions.
II. LITERATURE REVIEW
The complex correlation between the implementation of management accounting systems and the
adoption of knowledge management will be explained in this part. The adoption of knowledge management is
suggested as a driving force leading to the implementation of management accounting systems in business, but it
is determined by the implementing level of management accounting systems in business. This intricate
association will be discussed in more detail below.Knowledge is defined by Alavi and Leidner (2001) as being
the state of knowing and understanding, an object to be stored and manipulated, a process of applying expertise
and a condition of access to information as well as the potential to affect action. It is also referred to as a
valuable asset that helps a company to perform business activities superior to others. When a company has the
knowledge to do business, it has a core competency, which allows the company to create competitive
advantages over their competitors. Sullivan (2000) and Kok (2007) imply that knowledge is constituted from
intellectual capital that contains three main important variables, namely human capital, structural capital and
customer capital. In addition, Klein and Prusak (1994) define intellectual capital as “useful knowledge”.
Following their perspectives, we consider intellectual capital as knowledge. Knowledge management is a
process of creating, capturing and using knowledge to improve firm performance (Edwards et al. 2005). It is
also considered as a management tool to control organizational knowledge to create competitive advantage and
so improve organizational performance (Droge et al. 2003). In addition, Lakshman (2007) refers knowledge
management as an organizational capability, which allows its employees to work together to generate, capture,
share, and leverage their collective knowledge to boost their performance. Consequently, the adoption of
knowledge management is essential to firms in improving organizational performance. Based on previous
studies (Gold et al. 2001; Lin and Lee 2005), we define the adoption of knowledge management as the extent to
which firms are contented with the adopting levels of knowledge management, resulting in knowledge sharing
and application.
In addition to the adoption of knowledge management, the other main variable mentioned in this
research is the implementation of management accounting systems in business. Management accounting is
crucial to firms in controlling their business activities by offering the firms’ managers with useful information,
which will help them deliver better decisions on business and hence they can maintain effective management
over firm resources. Management accounting systems are necessary for firms in providing timely and accurate
information so as to facilitate the management of costs, pricing decision, as well as the measurement and
enhancement of productivity (Johnson and Kaplan 1987). Previous studies (Otley 1999; Fullerton and
McWatters 2001) have argued that the new techniques have affected the practices of management accounting in
business in which they have turned the focus of management accounting from a simple role of financial control
to an intricate role of creating value by better using resources. In addition, Kaplan (1983) emphasizes that
management accounting systems play an important role in providing essential information for management
planning to enhance firm performance. Nonetheless, Lucas (1997) argues that traditional management
accounting systems, such as traditional budgeting, cost volume profit analysis, and variance analysis, which are
financially oriented, are not still regarded as a helpful means to offer adequate information for the control of
organizational activities in the current dynamic business environment. In addition to the traditional management
accounting systems, firms should refer to more advanced management systems- such as activity based costing,
total quality management and balanced scorecard- for meeting the requirements of customers as well as other
stakeholders. In concurrence with the above-mentioned viewpoints, we refer to the adoption of management
accounting systems in business as the extent to which a firm adopts the management accounting systems,
including both the above-mentioned traditional and advanced practices for controlling business activities.
Accounting is involved in the production,

processing and reporting of information; whereas, management accounting tries to offer managers with
information-based intelligence (Bhimani and Roberts 2004). Furthermore, Bhimani and Roberts (2003) claim
that management accounting is increasingly deemed to affect knowledge management activities. They also call
for more studies on the relationship between management accounting and knowledge management. In addition,
Klein and Prusak (1994) refer to intellectual capital as “useful knowledge”; whereas Sullivan (2000) implies that
intellectual capital constitutes knowledge. Hence, the connection between management accounting and
knowledge management can be regarded similarly to the link between management accounting and intellectual
capital. The adoption of management accounting systems are reported to positively affect and be positively
affected by the adoption level of intellectual capital (Tayles et al. 2002, 2007; Edwards et al. 2005; Novas et al.
2012). For the effect of management accounting systems on the adoption level of intellectual capital, Novas et
al. (2012) in a study “on the relations between management accounting systems and intellectual capital:
evidence for Portuguese companies” discuss the role that management accounting systems play in the
development of intellectual capital. They find out that management accounting systems put statistically positive
effect on the level of implementation in intellectual capital. Similarly, Tayles et al. (2002) when having
investigated the relationship between the level of intellectual capital management and the adoption of
accounting management systems, suggest that the adoption of accounting management systems supports the
management of intellectual capital. As regards the influence of the management level of intellectual capital on
the adoption of accounting management systems, it is implied by Edwards et al. (2005) in the research on
“knowledge management and its impact on the management accountant” that the level of knowledge
management affects the management accountant, and hence affects the adoption of management accounting
systems. Additionally, Tayles et al. (2007) also explore the effect of intellectual capital management on the
adoption of accounting management systems. Their findings reveal that the level of implementation in
intellectual capital has a positive relationship with the adoption of management accounting systems. Based on
the above discussions, a suggestion that there is a positively mutual association between the level of intellectual
capital management and the adoption of management accounting systems can be reached. Also grounded on the
argument by Klein and Prusak (1994) that intellectual capital is defined as “knowledge”, we can posit the two
following hypotheses.
H1: The implementation of management accounting systems positively influences the adoption of knowledge
management
H2: The implementation of management accounting systems is positively affected by the adoption of knowledge
management
As above discussed, the implementation of management accounting systems is both the causation and
the consequence of adopting knowledge management in business, nevertheless, which factor comes first in the
mutual relationship has not been justified and examined in previous research. This research applies the directed
acyclic graph (DAG) model to determine which variable of the two above variables comes first in the effect on
the other. Having theoretically discussed the complicated link between the implementation of management
accounting systems and the adoption of knowledge management in business, I will explain in detail the research
methodology employed in this research to guide the data collection and facilitate the data analysis.
III. RESEARCH METHODOLOGY
3.1. Definition of Variable
This research deals with the two main variables, which are the adoption of knowledge management and
the implementation of management accounting systems. The measurement of these two variables for statistical
analyses is described below. First, “the adoption of knowledge management” (AKM) is evaluated based on the
five items: (1) knowledge sharing between supervisors and subordinates- AKM1, (2) knowledge sharing among
colleagues- AKM2, (3) knowledge sharing across the units- AKM3, (4) effective management of different
sources and types of knowledge- AKM4 as well as (5) application of knowledge into practical use- AKM5. A
five-point scale ranging from 1.dissatisfied, 2.a little dissatisfied, 3.a little satisfied, 4.quite satisfied, and to
5.very satisfied with the achievements in each dimension of knowledge management over the last three years is
applied to assess these five items which are modified from Gold et al. (2001) and Lin and Lee (2005). Second,
the implementation of management accounting systems (MAS) is measured by using a five-point scale, which
ranges from 1.never considering, 2.decided not to introduce, 3.favored to introduce, 4.intended to introduce, to
5.under implementation of management accounting systems, adapted from Cinquini et al. (2008). The six
dimensions that are traditional budgeting (MAS1), cost volume profit analysis (MAS2), variance analysis
(MAS3), activity based costing (MAS4), total quality management (MAS5) and balanced scorecard (MAS6),
are utilized for the main variable “MAS”, adapted from the prior studies (Lucas 1997; Hyvonen 2005; Al-Omiri
and Drury 2007).

3.2. Data collection
This research uses the data sample collected from the two Vietnamese Stock Exchanges, composed of
705 firms in total. Of them, 397 firms are listed on Ha Noi Stock Exchange and the other 308 on Ho Chi Minh
Stock Exchange. The initial solicitations were used to get replies from main informants implicated in knowledge
management and management accounting. I conducted the questionnaire with a manager involved in knowledge
management and management accounting for each surveyed firm. The questionnaires were emailed to 475 firms
and in person interviewed in the other 230 firms. Of 475 questionnaires that were emailed, only 243 were
returned, in which 83 questionnaires did not provide enough information as required and only 160 offered the
complete answers. Of the 230 interviews that were planned to be face-to-face performed, only 187 offered the
good outcomes for the questionnaire. Finally, 347 good replies with sufficiently required information for this
research were obtained.
3.3. Analytic Procedures
For the reliability, this research employs the reliability analysis to test the properties of measurement
scales and the items that create the scales. It also applies an exploratory factor analysis to test for construct
validity. To investigate which variable of the two main variables in this research comes first in the mutual
relationship between them, it performs the directed acyclic graph technique, which differentiate actual cause
from spurious cause in a set of data, clearly distinguishes direct cause from indirect cause (Wang 2010). In
addition, this method tests the statistical significance for the two hypotheses discussed in this research.
IV. EMPIRICAL RESULTS
The results of the reliability analysis to evaluate the internal reliability of items are given in Table 1.
The results from step 1 show that although Cronbach’s Alphas exceed 0.7, the acceptable level stipulated by
Nunnally (1978), its item-total correlation of MAS6- balanced scorecard obtains the value of 0.231 less than
0.5, the smallest suggested limit. Hence, MAS6 is removed from the data. Then, the 10 other items go through
step 2. The findings reveal that all the ten items achieve the item-total correlation of more than 0.5. Furthermore,
the Cronbach’s Alphas are both greater than 0.7. These results imply that the scales achieve sufficient internal
reliability. As a result, the ten items (AKM1, AKM2, AKM3, AKM4, AKM5, MAS1, MAS2, MAS3, MAS4
and MAS5) are suitably retained for next analyses. The ten items are dealt with the exploratory factor analysis
to evaluate construct validity. The exploratory factor analysis yields the results as exhibited Figure 1 in Table 2,
which suppresses the values of factor loadings below 0.35. According to Figure 1, the scree plot, which
indicates a plot of the variance associated with each factor- used to determine how many factors should be kept,
shows a distinct break at step 2, where the Eigenvalues move from 1.310 to 0.667. This implies that the data is
classified into two main factors. Furthermore, Table 2 demonstrates that the five items AKM1, AKM2, AKM3,
AKM4, AKM5 converge into the main factor AKM and the five other items congregate into the main factor
MAS. In addition, Nunnally (1978) stipulates that in order to achieve the construct validity, the scales have to
satisfy the discriminant validity and the convergent validity. To pass the discriminant validity, an item should
obtain a cross loading larger than 0.3 and to satisfy the convergent validity, its factor loading should be more
than 0.4. In addition, Kaiser-Meyer-Olkin measure of sampling adequacy (KMO) that test whether the partial
correlations among the variables are small and Communalities should be greater than 0.7 and 0.5 respectively,
proposed by Hair et al. (2010). The results from Table 2 indicate that all the cross loadings are more than 0.3
and all the factor loadings are well over 0.4. Moreover, KMO obtains a value of 0.849 more than the acceptable
level of 0.7, while all the communalities exceed the suggested level of 0.5. Additionally, the exploratory factor
analysis obtains the statistical significance level of 0.01. The above findings show that all the scales in this
research achieve the construct validity. Consequently, all the 10 items are appropriately and reliably retained for
further analyses.
Table 1: Results from Reliability Analysis
Step 1:
Item Item-total Correlations Cronbach’s Alpha N of Items
AKM1 .751
.892 5
AKM2 .733
AKM3 .696
AKM4 .780
AKM5 .739
MAS1 .634
.810 6
MAS2 .624
MAS3 .660
MAS4 .677
MAS5 .641
MAS6 .231

Step 2:
Item Item-total Correlations Cronbach’s Alpha N of Items
AKM1 .751
.892 5
AKM2 .733
AKM3 .696
AKM4 .780
AKM5 .739
MAS1 .664
.852 5
MAS2 .654
MAS3 .646
MAS4 .693
MAS5 .662
Figure 1: Scree Plot
Table 2: Results from Exploratory Factor Analysis
Item
Factor Loadings
Communalities
AKM MAS
AKM1 .770 .711
AKM2 .766 .691
AKM3 .824 .696
AKM4 .789 .353 .748
AKM5 .801 .705
MAS1 .739 .618
MAS2 .721 .611
MAS3 .758 .616
MAS4 .782 .671
MAS5 .756 .626
N of Items 5 5 ∑=10
KMO 0.909
Pvalue 0.000
The mutual relationship between the implementation of management accounting systems and the
adoption of knowledge management is mentioned in various studies (Tayles et al. 2002, 2007; Edwards et al.
2005; Novas et al. 2012). However, none of them has investigated which of them comes first in the relationship.
This research applies the directed acyclic graph (DAG) approach to the first direction in the mutual link between
the adoption of knowledge management and the implementation of management accounting systems in
business. The result is displayed in Figure 2 and Table 3, which reveals that, first the implementation of
management accounting systems is the factor leading to the adoption of knowledge management at the 0.01
significance level with the coefficient of 0.6095. However, after being affected by the implementation of
management accounting systems, the adoption of knowledge management is also a causation of boosting the

implementing level of management accounting systems in business at the 0.01 significance level with the
estimate of 0.5177.
Figure 2: Resulting Model from DAG approach
Table 3: Results from DAG approach
Relationships
Coefficients Standard Error t-statistics Pvalue Supported
From To
MAS AKM 0.6095 0.0483 12.6294 0.000 H1
AKM MAS 0.5177 0.0410 12.6294 0.000 H2
In addition, Table 3 also provides statistical evidence for the two hypotheses being tested in this research. The
implementation of management accounting systems positively put a statistically significant effect on the
adoption of knowledge management. The firms that enjoy the higher level of implementing management
accounting systems in their business will tend to adopt knowledge management in order to create competitive
advantages over their rivals (H1). Then the adoption of knowledge management in business will boost the
implementation of management accounting systems to a higher level (H2).
V. CONCLUSION
Prior studies have examined the association between the implementation of management accounting
systems and the adoption of knowledge management. Nonetheless, they have not investigated which factor of
the two main variables “between the implementation of management accounting systems and the adoption of
knowledge management” is the first factor affecting the other. This paper employs the directed acyclic graph
technique to the first direction in the relationship between these two variables. The findings found that firstly the
implementation of management accounting systems is the driving force leading to the adoption of knowledge
management. Then, the higher adopting level of knowledge management will enhance the implementing level of
management accounting systems in business to a higher level.This research offers some contributions to the
management literature. It is the first one to provide a clear picture of the relationship between the
implementation of management accounting systems and the adoption of knowledge management. At first, the
implementation of management accounting systems is the decisive factor of adopting knowledge management,
however then the adoption of knowledge management also a factor putting an effect back on the implementation
of management accounting systems. This research also is helpful to business managers by providing them a
better understanding of the complicated link between the implementation of management accounting systems
and the adoption of knowledge management. Accordingly, they can make better decisions on the application of
management accounting systems as well as knowledge management in order to develop competitive advantages,
which will help them boost up their business performance.

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